Debunked Report Challenges the Claim That the Dollar is Being Gradually Replaced by the Chinese Yuan
In a recent report, our platform has examined the perceived narrative of accelerating de-dollarisation, attributing it to the rise of the yuan. However, the reality of dedollarisation is more nuanced and complex, indicating a global trend towards a more decentralised range of financial power.
Contrary to popular belief, de-dollarisation is not an acute or rapid occurrence, and it is not happening due to a strong shift to any single other currency. Instead, the global trend towards de-dollarisation is driven more by a diversified decentralization to multiple currencies and gold rather than a singular shift to China’s yuan.
Central banks, especially in emerging markets, are increasingly reducing dollar reserves, boosting gold holdings, and diversifying into other currencies like the euro and the yuan. Gold now makes up about 9% of emerging market reserves, more than double a decade ago. The yuan is part of this diversification strategy, but the broader move is towards a more multipolar currency system with a suite of alternatives including the euro and digital currencies.
Analysts project a phased process where from 2024 to 2027 geopolitical fragmentation accelerates diversification, and from 2027 to 2035, a structural transition may see the emergence of multipolar currency blocs and alternative reserve systems. By 2040, the dollar’s share in foreign exchange reserves is expected to have declined to about 40–45%, a gradual erosion from its current 54-60%.
The US dollar is expected to remain dominant in the near term but likely lose significant share in foreign exchange reserves over the next two decades. The yuan is expected to reach 6% of global currency reserves by the end of 2034. However, this shift is towards a broader range of currencies, aiming to provide greater hedging from future possible geopolitical shocks.
It is essential to note that the report does not predict a rapid or acute occurrence of dedollarisation, but rather a slow and likely decades-long process. The narrative of a sharp and dramatic shift towards the yuan is overstated and does not accurately represent the current situation. The US dollar remains the largest currency for many decades to come, and the yuan's growth in cross-border payments and use in trade does not indicate a global trend towards dedollarisation.
Our platform will continue to monitor de-dollarisation as it evolves over the next few years, considering changes to the geopolitical landscape, climate change, and migration, and report on any significant changes to the current status quo.
[1] IMF, Central Bank datasets [2] Bank for International Settlements (BIS) [3] Goldman Sachs and JPMorgan reports [4] World Bank data on foreign exchange reserves
Finance analysts are anticipating a gradual decline in the US dollar's share in foreign exchange reserves, with the dollar's dominance expected to diminish significantly over the next two decades. Investing strategies in the business world are shifting towards a more multipolar currency system, including the yuan, euro, and digital currencies, as a hedge against potential geopolitical shocks.
